Finance Charges may be assessed per account to produce late fees based on a customer’s unpaid invoices. Finance Charges will reside on a customer’s account as a separate transaction from the original invoice. Finance Charges have a balance and may have payments submitted towards them the same as with invoices. It should be noted that you cannot apply prepayments towards finance charges. Note that finance charges are applied manually at the user’s discretion, on a per-account basis.
Under Settings >> Preferences >> Company Defaults, values should be provided for “Net Payment Is Due Within,” “Finance Charge Interest Rate,” and “Minimum Finance Charge.” To set up customer specific payment terms, you may use the Account Terms list found under Settings >> Lists.
Company Defaults / Global Settings:
“Net Payment Is Due Within” sets the number of days an Invoice may remain unpaid before it is considered late. Only late invoices qualify for finance charges. If and when a finance charge is processed for a late invoice, that number of days must then elapse again before a second finance charge may be processed.
“Finance Charge Interest Rate” controls the amount of the late fee. This is always a percentage of the remaining amount due. Example: an invoice is posted for $250.00 and a customer pays $150.00 then stops sending payments. The invoice then becomes late with a remaining balance of $100.00. If “Finance Charge Interest Rate” is set to 1.5% and the invoice incurs a finance charge, it will result in a late fee of $1.50 (100*0.015).
“Minimum Finance Charge” prevents any finance charge from being assessed for a smaller value than the amount specified here. Example: if “Minimum Finance Charge” is set to $1.00 and an invoice with only $0.99 due becomes late and incurs a finance charge, the finance charge will be posted to the account for the amount of $1.00 as this is set as the minimum for any late fee.
A "Default Account Term" may also be selected here, which will apply the chosen term to any newly created customers.
Customer Specific Settings:
To override the payment terms set by “Net Payment Is Due Within” any customer may be assigned a specific Account Term. If this is done the number of days an invoice may remain unpaid before being considered late is then controlled by the number of days associated with that term, instead of the number of days specified under Company Preferences. This allows for different customers to be handled under different terms of payment. Note that for these customers, the amount of the late fee will still be a percentage of the remaining invoice balance as specified under Company Preferences >> “Finance Charge Interest Rate.”
Calculating Finance Charges:
To apply late fees to any customer account, open the customer and navigate to their AR tab across the top of the page. From here press the “Calc FC” button on the right-hand side of the screen and the system will automatically identify any late invoices present on the account, and add a Finance Charge to the account for each one (these will be labeled as transaction type “FC” and reflect the invoice that incurred the charge in the “Reference” field).
Note that invoices on the account that have not exceeded their payment terms will not incur a finance charge. Also note that finance charges may not be processed again until a number of days have passed based on the customer’s account terms (or the “Net Payment Is Due Within” value) from when the first finance charge was applied. Example: if payment is due within 10 days and an invoice has gone unpaid for over a year, 10 more days must still pass after the first finance charge is applied before a second finance charge may be applied.
FAQ: Are Finance Charges reversible, or can they be credited off of accounts?
Finance Charges cannot be credited off using Credit Memos, only paid or deleted. If a finance charge is no longer applicable, navigate to the customer's AR tab and choose "Delete" on the right. You'll see a popup window listing all the transactions on the account that can be deleted. In that window highlight the finance charge you want to remove then choose "Delete" again. Refer to the attached screenshot.